The Darvas Box Trading Method

[MRC & Co]

This has me interested.
Price must travel from A to B for there to be a differential in price and hence a profit.

1 tick is a trend in a direction.

So how then do you trade?

Sorry tech. I don't get your point, what are you getting at exactly with these comments on this thread? According to your definition, everybody is a trend trader, so there is no need to even go on, unless we want to debate over what our individual definitions are of trend trading. Seems like a bit of a waste of time.

 

[It's Snake Pliskin]

Hi Snake,
If you like swing trading - have a look at Bollinger Bands, they offer very good dynamic support and resistance. If you use 2 std. devs. then statisically 95.4% of your data is always within the bands, if you use 3 std.devs. then 99.7% of price action will be contained within the bands.

If BBands interest you regarding swing trading- then use them when the bands are wide apart and not diverging, but more or less running horizontal.

Bollinger bands are the most predictive tool that I know of and can work across all market conditions.

Thanks for the perspective on BB's.
Cheers..

 

[Sebforliberty]

The Darvas Method is my favorite trading method and one I've been using for the past 7 years to make consistent returns from the market. It involves the use of a unique setup that integrates a volume spike with a rising stock price into a powerful trading system that incorporates entry timing, stop loss placement and exit timing. It is the creation of the legendary trader Nicolas Darvas in the 1950’s and is used to capture long term growth of leading stocks in the strongest industry groups.

For anyone that has not applied this method in their own trading I suggest you have a read of Darvas's book, "How I Made 2 Million in the Stockmarket" -it's a timeless classic containing invaluable market lessons and insight.

For a stock to qualify as a potential Darvas trade, it first has to exhibit a proof of changed behavior in the form of a recent volume change of at least a 400% increase compared to the average daily volume for the past few weeks. The stock must also be rising in price and make a new yearly high. The Darvas Box upper and lower boundaries will then form if this high is not touched or penetrated for the next 3 consecutive trading days followed by a retracement low that’s not touched or penetrated for a further 3 days in a row, as shown in the picture below. Darvas tells us that sometimes the top and bottom of the box may form on the same day. In such a case, the requirement is that neither the high nor the low of that day are touched or penetrated for 3 consecutive trading days.

Once a box forms, I place a buy stop order to purchase my stock the moment it pushes through the top of the box. At the same time, I enter an automatic stop loss order just below the bottom of the box to protect my position. As the prices increase and new boxes form, I trail my stop loss just under the bottom of each new box to lock in the profits. One aspect of this trading method that made Darvas so successful is the pyramiding of position by buying more stock on the breakout of subsequent boxes – a very powerful technique to maximize returns in a winning trade!

best regards

Hello, sadly i can't see your chart, i would like to know if each boundarie is based on the closing price or on the higher/lower intraday price ?
Thanks !

 

[pixel]

Hello, sadly i can't see your chart, i would like to know if each boundarie is based on the closing price or on the higher/lower intraday price ?
Thanks !

You can read the details here: http://www.nicolasdarvas.org/
But beware: Darvas made his profits during an exceptional period of Bull Market conditions. When that ended, so did his run of profits, and he instead derived his income from talking about and commercialising his method.

 

[tech/a]

You can read the details here: http://www.nicolasdarvas.org/
But beware: Darvas made his profits during an exceptional period of Bull Market conditions. When that ended, so did his run of profits, and he instead derived his income from talking about and commercialising his method.

Brains and Bull markets.
I'm sure that's where mine come from!
Which in a bull market is fine.

Mind you if you can find good moves even
on a daily basis like the DAX HSI etc it works
very well there as well.

 

[pixel]

Brains and Bull markets.
I'm sure that's where mine come from!
Which in a bull market is fine.

Mind you if you can find good moves even
on a daily basis like the DAX HSI etc it works
very well there as well.

True - the problem lies in identifying a trending timeframe. Get that right, and any trend-following technique will be successful - until the trend ends.

btw, I wonder what has become of the starter of this thread. His website no longer exists, the domain is up for sale, and he hasn't been posting since 2010...

 

[AlterEgo]

Hello, sadly i can't see your chart, i would like to know if each boundarie is based on the closing price or on the higher/lower intraday price ?
Thanks !

The Darvas method uses the highest & lowest intraday prices to set the top and bottom of the box.

 

[tech/a]

The Darvas method uses the highest & lowest intraday prices to set the top and bottom of the box.

Or you could trade a 15 min chart and do the exact same thing using a 1 min chart (15 bars).
3 min with a 30 min etc etc

 

[Sebforliberty]

The Darvas method uses the highest & lowest intraday prices to set the top and bottom of the box.

Ok thank you AlterEgo ! One more question, what about the stop loss ? in the book, he says :

" i placed my stop losses one fraction below the ceiling through wich the stock brock through "

What does mean one fraction ? 1% ? (i'm french...)



@Tech/a : Darvas isn't a day trader, he is a swinger, he is only daily charts.

 

[pixel]

Ok thank you AlterEgo ! One more question, what about the stop loss ? in the book, he says :

" i placed my stop losses one fraction below the ceiling through wich the stock brock through "

What does mean one fraction ? 1% ? (i'm french...)

@Tech/a : Darvas isn't a day trader, he is a swinger, he is only daily charts.

"A fraction" is another word for "a small amount" - could be a tick or two. In French you'd say "un peu".

Darvas may be a swinger - pretty close actually: he was a dancer - but the main reason why he didn't trade intra-day is that in his days, computers hadn't been invented yet and he didn't have access to live data while dancing for a living on cruise ships. The principles can still be applied to any trending tradable instrument.

Examples:
Paritech's Pulse, the software I'm using for my trading, offers Darvas boxes to be loaded on any chart. As long as there is a trend, Darvas can be applied and traded. It even includes a (shaded) red stop-out zone underneath each box, which suggests the area "a fraction" below the last associated entry level.
That zone is rather narrow on a Daily chart:



Same stock with 5-minute ticks suggests much wider "fractions":



While I did not trade ASB by Darvas boxes, the above charts support my decision to take bites at $1.85, $1.91, and $1,955 and no need to sell in between.

 

[Sebforliberty]

"A fraction" is another word for "a small amount" - could be a tick or two. In French you'd say "un peu".

Darvas may be a swinger - pretty close actually: he was a dancer - but the main reason why he didn't trade intra-day is that in his days, computers hadn't been invented yet and he didn't have access to live data while dancing for a living on cruise ships. The principles can still be applied to any trending tradable instrument.

Examples:
Paritech's Pulse, the software I'm using for my trading, offers Darvas boxes to be loaded on any chart. As long as there is a trend, Darvas can be applied and traded. It even includes a (shaded) red stop-out zone underneath each box, which suggests the area "a fraction" below the last associated entry level.
That zone is rather narrow on a Daily chart:

View attachment 63580

Same stock with 5-minute ticks suggests much wider "fractions":

View attachment 63579

While I did not trade ASB by Darvas boxes, the above charts support my decision to take bites at $1.85, $1.91, and $1,955 and no need to sell in between.

Woua thanks ! Based on your charts, it seems that the stop loss is 1% Under the lower box boundarie.

However in other parts of the book, as a general rule, Darvas talks about putting the entry 0,25% beyong the upper boundarie, and the stop loss 0,25% Under the UPER boundarie (also that's not consistent with some trades that he did and lost about 2 to 4% of the capital...). It's only when a new box if formed that you put the stop Under the new low box boundarie.

That seems problematic to me because the probability to touch a 0,5% stop loss on a volatile stock (remember that Darvas traded only small caps with strong revenue growth and leading in the most dynamic sectors...not the general market or currencies, which move differently) seems close to 100% in my view...so it's too narrow...do you agree ? or maybe the idea is that if a breakout occures the price should shoot up very fast without looking back.

So if somebody could explain how to manage entry and stop loss Under the Davas strategy that would be very nice

 

[peter2]

N. Darvas was able to put his stop loss 1/8 or 1/4 point below the top of his box because there wasn't the same amount of trading activity and volatility that we see in the current markets. Proponents of his approach have suggested that the SL be placed below the bottom of the box since that is marked by a low. Others have included an additional 1% or 2% below this.

If price has traded above the top of the box, then you don't need to wait until price goes all the way to the bottom before you realise the break-out of the top has failed.

Darvas boxes in a trend make beautiful charts.

 

[Sebforliberty]

N. Darvas was able to put his stop loss 1/8 or 1/4 point below the top of his box because there wasn't the same amount of trading activity and volatility that we see in the current markets. Proponents of his approach have suggested that the SL be placed below the bottom of the box since that is marked by a low. Others have included an additional 1% or 2% below this.

If price has traded above the top of the box, then you don't need to wait until price goes all the way to the bottom before you realise the break-out of the top has failed.

Darvas boxes in a trend make beautiful charts.
View attachment 63581

Thank you very much ! Yes i think you're right. So i will put my entry 0,25% beyond the upper bondarie of the box, but the stop loss 0,25% under the low bondarie of the box. Does it seem correct for you ?

1% or 2% below the upper bondarie could work, but 1 or 2% below the low bondarie is absurd...if you come close from the low bondarie it's already that the stock doesn't behave well....

What about a stop loss at 50% retracement of the box (between the upper and lower bondarie) ?